Carmakers Must First Help Themselves-EU Draft

It urged carmakers to tackle structural problems related to production efficiency and capacity utilisation.

The European Commission reaffirmed on Wednesday that auto makers must first address the downturn themselves and that any government help should be temporary and adhere to the bloc's state aid rules.

France this month sparked a debate about protectionism by offering a 6-billion-euro ($7.69 billion) state loan to Renault and PSA Peugeot-Citroen in return for a pledge not to close facilities in France.

The EU executive, which is now studying the French scheme, has raised initial concerns that it may breach single market and state aid rules. The Commission has also expressed doubts over Italy's 1.2-billion-euro car package.

"Primary responsibility for dealing with the crisis lies with the industry, individual companies and their managements," the Commission said in a draft document seen by Reuters.

"Targeted and temporary public sector support at EU and member state level can help to complement industry's efforts to withstand the crisis and cushion the negative employment effects of likely restructuring," said the draft of guidelines due to be published later on Wednesday.

It urged carmakers to tackle structural problems related to production efficiency and capacity utilisation.

The EU's car industry, with annual sales of 780 billion euros and employing 12 million people, has said production could fall by at least 15 percent this year and that carmakers may need as much as 15 billion euros in financial help this year.

Peugeot-Citroen, Europe's second-biggest volume auto firm, has forecast a 20 percent drop in sales this year, with further pain expected in 2010.

EU governments should coordinate their response to the sector to avoid a subsidy race and any protectionist measures, the Commission said.

"Times of economic uncertainty increase the likelihood of countries seeking to protect their industries through erecting barriers to trade. Fair competition in open markets can help to fight the current crisis, whereas any protectionist measures threaten to deepen it," it said.

Earlier on Wednesday the Commission said it was studying details of a 4-billion-euro plan by Spain to support its car industry to make sure it complies with EU rules.